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AP Microeconomics

Subjects : economics, ap
Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Additional costs to society not captured by the market supply curve from the production of a good - result in a price that is too low and a market quantity that is too high. Resources are overallocated to the production of this good






2. In the case of a public good - some members of the community know that they can consume the public good while others provide for it. This results in a lack of private funding and forces the government to provide it






3. A good for which higher income increases demand






4. Consumer income - prices of substitute and complementary goods - consumer tastes and preferences - consumer speculation - and number of buyers in the market all influence demand






5. The number of units of any other good Y that must be sacrificed to acquire good X. Only relative prices matter






6. The upward part of the LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms - which results in lost efficiency and rising per unit costs.






7. A good for which higher income decreases demand






8. A period of time too short to change the size of the plant - but many other - more variable resources can be changed to meet demand






9. Entry of new firms shifts the cost curves for all firms downward






10. Pm > MR = MC - which is not allocatively efficient and dead weight loss exists. Pm > ATC - which is not productively efficient. Profit > 0 so consumer surplus is transferred to the monopolist as profit






11. MUx / Px = MUy/Py or MUx/MUy = Px/Py






12. Production inputs that cannot be changed in the short run. Usually this is the plant size or capital






13. Costs of inputs - technology and productivity - taxes/subsidies - producer speculation - price of other goods that could be produced - and number of sellers all influence supply






14. Ei > 1






15. Production of the combination of goods and services that provides the most net benefit to society. The optimal quantity of a good is achieved when the MB = MC of the next unit and only occurs at one point on the PPF






16. The marginal utility from consumption of more and more of that item falls over time






17. Indirect - non-purchased - or opportunity costs of resources provided by the entrepreneur






18. The difference between your willingness to pay and the price you actually pay. It is the area below the demand curve and above the price






19. Occurs when LRAC is constant over a variety of plant sizes






20. A group of firms that agree not to compete with each other on the basis of price - production - or other competitive dimensions. Cartel members operate as a monopolist to maximize their joint profits






21. Labor demand for the firm is MRPL curve. The labor demanded for the entire market DL = ?MRPL of all firms






22. Additional benefits to society not captured by the market demand curve from the production of a good - result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good






23. A market structure characterized by a few small firms producing a differentiated product with easy entry into the market






24. The change in quantity demanded resulting from a change in the price of one good relative to other goods






25. Ed < 1






26. Two goods are consumer substitutes if they provide essentially the same utility to consumers






27. A per unit tax on production results in a vertical shift in the supply curve by the amount of the tax






28. The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price






29. Pmc < MR = MC and Pmc > minimum ATC so outcome is not efficient - but profit = 0.






30. Ed = 8 - infinite change in demand to price change






31. Holding all else equal - when the price of a good rises - consumers decrease their quantity demanded for that good






32. Another way of saying that firms are earning zero economic profits or a fair rate of return on invested resources






33. An economic system based upon the fundamentals of private property - freedom - self-interest - and prices






34. The downward part of the LRAC curve where LRAC falls as plan size increases. This is the result of specialization - lower cost of inputs - or other efficiencies of larger scale.






35. The imbalance between limited productive resources and unlimited human wants






36. A legal maximum price above which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent shortage






37. The output where ATC is minimized and economic profit is zero






38. Occurs when an economy's production possibilities increase. This can be a result of more resources - better resources - or improvements in technology.






39. The price of a good measured in units of currency






40. The additional benefit received from the consumption of the next unit of a good or service






41. Measures the cost the firm incurs from using an additional unit of input. In a perfectly competitive labor market - MRC = Wage. In a monopsony labor market - the MRC > Wage






42. The more of a good that is produced - the greater the opportunity cost of producing the next unit of that good






43. Costs that change with the level of output. If output is zero - so are TVCs.






44. The lost net benefit to society caused by a movement away from the competitive market equilibrium






45. The combination of labor and capital that minimizes total costs for a given production rate. Hire L and K so that MPL / PL = MPK / PK or MPL/MPK = PL/PK






46. Excess supply; exists at a market price when the quantity supplied exceeds the quantity demanded.






47. Ed = 1






48. A legal minimum price below which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent surplus






49. Ed = (%dQd)/(%dP). Ignore negative sign






50. The difference between the monopolistic competition output Qmc and the output at minimum ATC. Excess capacity is underused plant and equipment







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